In today’s episode, I’m sharing a time-tested strategy that can boost your confidence when it comes to withdrawing money in retirement—the barbell strategy. Also known as the two-bucket approach, this method is designed to help you navigate market volatility while staying focused on long-term growth.

I’ll walk you through the who, what, when, where, why, and how of the barbell strategy—so by the end of this episode, you’ll have a clear understanding of how it works and whether it’s a fit for your retirement plan.

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Articles, Links & Resources:

Wes Crill PhD – The Longer View On Stocks 
Hartford Funds:  Stock Market Volatility
Harold Evensky – The Godfather of the 2 bucket strategy
Morningstar – Christine Benz – The Bucket Approach
Barfield Financial – Chris Barfield, CPA – 2025 Edition of the Barbell Strategy

Transcript:

453 The Barbell Strategy- How to Be a Pessimist and Optimist at the Same Time

Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now here is your host, Jason Parker,

Jason Parker: America. So glad to have you tune in into episode number 453.

The title is. The barbell strategy, how to be a pessimist and an optimist at the same time. But before we get into today’s show, I always like to start out by renewing our mind, and this verse comes to us from John chapter 16, verse 33. I have told you these things so that in me, you may have peace in this world, you will have trouble.

But take heart, I have overcome the world. And then something fun for the grandkids. What does the AI baby call its father data. Which month of the year is the shortest? May it only has three letters.

Remember, articles, links, and resources can be found@soundretirementplanning.com. Just click on episode number 453. As I was preparing for this podcast episode last Saturday, I found myself thinking about how my vision has changed over the past couple of years. These days, I rely on reading glasses. And I’m so grateful for them, and that got me curious, who actually invented reading glasses.

And it turns out that they go all the way back to around the 13th century in Italy. And while they don’t know exactly who invented them, what we do know is that they’ve made a tremendous impact in the world. They’ve certainly changed my life. I can see clearly now, and it’s such a gift. That phrase I can see clearly now got me thinking about the classic song by Johnny Nash released back in the 1970s.

As it turns out, I can see clearly now was the title track of his 10th album, and it became the biggest hit of his career reaching number one on the billboard charts in 1972. It’s a good thing he didn’t stop recording after his ninth album. I. He was 33 years old when the song took off, and I’m sure like all of us, there were probably times in his journey where he could have gone a different direction and abandoned his recording career.

Thank goodness he stuck with his music. His persistence reminds me that sometimes the greatest clarity comes just after the storm. And just before the breakthrough, that song, a pair of well worn readers and a hot cup of coffee on a beautiful sunny Saturday morning in Washington state, together, they remind me that seeing clearly can change everything I.

And that’s what today’s episode is all about, helping you see your retirement strategy more clearly so that you can move forward with greater peace of mind, even when the markets aren’t cooperating. In today’s episode, I’m sharing a time-tested strategy that can boost your confidence when it comes to withdrawing money in retirement, the barbell strategy.

Also known as the two bucket approach. This method is designed to help you navigate market volatility while staying focused on long-term growth. I’m gonna walk you through the who, what, when, where, why, and how of the barbell strategy. So by the end of this episode, you’re gonna have a clear understanding of how it works and whether it’s a fit for your retirement plan.

Put simply this strategy involves holding some of your retirement assets in low risk, easily accessible accounts. While the rest remain invested for long-term growth, the goal isn’t to predict the market because no one can, but rather to create a structure that allows you to respond calmly and strategically no matter what the market is doing.

Why this strategy matters right now. We’ve recently seen some of the most dramatic swings in market history, according to Wes Krill, PhD at Dimensional Fund Advisors. He said stocks turned up the volatility to 11 this April. And between April 3rd and fourth, the s and p 500 declined more than 10%, followed just days later by a 9.5% gain, the third largest one day increase since 1987.

Events like these can be unsettling, especially for retirees, and while the market ups and downs are normal, that doesn’t make them any less emotionally taxing, especially when you’re about to retire and no longer earning a paycheck. So where did the barbell strategy come from? Christine Benzs, director of Personal Finance at Morningstar has written extensively about the bucket approach to retirement planning.

She credits financial planner Harold Devinsky, who developed the two bucket framework back in the mid 1980s as her inspiration. Ev Evensky has described the approach as a behavioral insurance policy, designed not to boost returns, but to help retirees avoid panic driven decisions. More recently, Chris Barfield, a CPA, and retired federal law enforcement officer, has written a great ebook on the subject geared towards federal employees, but the principles apply to anyone approaching retirement.

I emailed Chris and he gave me permission to share a link to his free ebook in the in the show notes. Okay, so who’s the strategy for. This approach is especially relevant for those nearing or entering retirement who plan to withdraw from their investment portfolio to cover living expenses. The barbell strategy is flexible, and this strategy allows you to be an extreme pessimist in the short term with secure funds that are ready to use and an optimist in the long term.

By staying invested for future growth, what is the barbell strategy? Think of a barbell. It has weights on both ends, but not in the middle. On one end, you have low risk assets like savings, money, market accounts, short-term bond funds. This is the money you plan to use in the first years of retirement. I.

On the other end, you have growth oriented investments like broadly diversified stock and bond funds, which are designed to support spending needs later in retirement. This strategy isn’t about trying to beat the market, it’s about giving yourself breathing room during tough market cycles so that you don’t have to sell long-term investments at a loss.

So when should somebody think about implementing it? If you’ve saved more than enough for retirement, you might begin setting up your barbell strategy five years before retiring, gradually, setting aside one year of cash reserves each year. If your situation’s tighter, you might wait until the year you retire or shortly before to maximize your portfolio’s growth potential during your working years.

It isn’t a one size fits all solution. Your timeline and comfort with risk will guide how many years of withdrawals you want in the lower risk side of the strategy. And that brings us to how do you create a barbell strategy? Number one, you need to understand your cash flow. Estimate your retirement income and expenses.

It helps to know how much of your essential expenses are covered by guaranteed sources of income like social security or pension. Number two, you need to identify your income gap. This is the portion of your essential retirement spending that’s not covered by guaranteed sources like social security or pensions.

That’s the amount you need to draw from your investments to cover basic living expenses. And it’s important to note you don’t need to allocate your entire portfolio to low risk assets and not even. All of your expenses. Instead, consider reserving just enough and safer investments to cover your essential expenses in the early years of retirement.

This helps ensure stability where it matters the most, while allowing the rest of your portfolio to remain invested for long-term growth. In the retirement budget calculator, you can tag expenses as either essential or discretionary, which makes it really easy to identify how much needs to be lower risk.

Number three, allocate based on your time horizon and risk tolerance. Some people feel confident with just two years worth of essential expenses held in low risk accounts like cash or short term bond funds. Others may prefer the stability of five or even 10 years of withdrawal set aside. The goal is to have enough in your low risk allocation to provide peace of mind, especially during volatile markets.

This cushion gives you growth oriented investments, the time they need to recover from short term market declines, reducing the likelihood that you’re gonna need to sell during a downturn. You’ll use the accounts that you already have, and whether that’s savings, IRAs, Roth IRAs, brokerage accounts, or others to fund both sides of the barbell.

For the low risk side, consider holding cash equivalents or short duration fixed income investments to preserve stability and liquidity on the growth side. Broadly diversified stock and bond funds can offer exposure to long-term market growth while helping reduce the concentrated risk that comes with owning individual stocks.

And so that brings us to why would you use a barbell strategy? It’s important to realize that retirement planning isn’t just about growing wealth, it’s about protecting it. Volatility is a normal part of investing, but it can lead to emotional decisions that hurt long-term outcomes. I. The barbell strategy helps reduce this temptation by giving you a plan for how to draw income without reacting to the short term market drops.

Remember, successful investing isn’t about timing the market, it’s about time in the market. Staying invested even during uncertain times is really important. There was some research that was done by the Hartford Funds and it really highlights this well. They said about 42% of the s and p 500 index strongest days in the last 20 years occurred during a bear market.

I. Let me say that again. 42% of the s and p 500 index strongest days in the last 20 years occurred during a bear market. Another 36% of the market’s best days took place in the first two months of a bull market. I. Before it was clear that a bull market had begun. In other words, the best way to weather a downturn may be to stay invested because timing the market’s recovery is incredibly difficult, and that’s where the barbell strategy can really shine.

By setting aside enough and low risk assets to meet near term needs, you give your growth oriented investments the time they need to rebound. Historically, markets have recovered and they often start to do so before the broader economy feels stable again. You want your money in a position to benefit from those powerful rebound days, which can often happen when investor sentiment is still low.

Missing just a handful of those days can significantly reduce your long-term returns. That’s why maintaining a thoughtful, balanced strategy is so valuable. Just think back earlier this month when the market was down 10%, if you had sold and then just a few days later you missed out on the rebound of 9.5%, that really hurts.

Okay, so what are the drawbacks of a barbell strategy? The primary trade off is opportunity cost. Money allocated to low risk accounts like cash or short-term Bonds typically earns lower returns, especially when interest rates are low, but the peace of mind that this provides and the flexibility to avoid selling long-term investments during a downturn, I.

Can be well worth the cost. How much to hold in low risk assets depends partly on your time horizon, risk tolerance and the interest rate environment. When interest rates are higher, the cost of holding cash is lower, which may justify a larger reserve when rates are low. Holding a few years of expenses in cash can help reduce the cash drag on the long-term growth.

This strategy is also flexible. While we often refer to it as a two bucket or a barbell approach, you can structure your withdrawals using two, three, or even four distinct buckets, tailoring it to your retirement goals in your comfort level. It’s important to remember retirement investing isn’t about maximizing returns.

It’s about earning a rate of return that supports your lifestyle enough to sustain comfort, confidence, and independence. Most retirees that I’ve met are not trying to be the richest person in the cemetery, but they also don’t wanna risk becoming a financial burden to those that they love. Whether you use a barbell strategy or any other bucket based approach, it’s all about finding the right balance between income and growth, safety and risk, so that your money works for you without keeping you up at night.

Whether you’re five years from retirement or already there, the barbell strategy is worth exploring. It won’t eliminate risk. And it isn’t designed to maximize returns. Instead, it offers a framework to align your retirement spending with your investments, with your time horizon and your comfort level so that you can stay invested.

Stay confident and stay on track. Now, grab a cup of coffee and ask your favorite music app to play. I can see clearly now by Johnny Nash. Take a few moments to feel grateful, for clarity, for planning, and for the road ahead. If you’ve ever slipped on a pair of reading glasses and marveled at how quickly the blurry becomes clear, then you already understand the power of clarity.

That’s exactly what the retirement budget calculator is designed to do, transform financial uncertainty, and into clarity. Help you envision your retirement with greater confidence and ultimately experience the freedom that comes from having a plan. I’m especially excited to share a powerful new feature buckets.

With this update, you can now model a barbell strategy By creating two or more customized buckets, you decide how many buckets to include, how many years of withdrawals each should cover, and which accounts fund each one. It’s flexible, intuitive, and if I may say so myself. Pretty amazing. Sign up today and see how much clarity a great plan can bring.

Announcer: Thank you for tuning in to Sound Retirement Radio. For articles, links, and resources from today’s show, visit sound retirement planning.com. If you enjoy the podcast, share it with a friend and give us a five star review. Ready to kickstart your retirement planning head over to retirement budget calculator.com.

Need assistance with investment management. Explore our services@parkerfinancial.net. Information and opinions expressed here are believed to be accurate and complete for general information only and should not be construed as specific tax, legal, or financial advice for any individual and does not constitute a solicitation for any securities or insurance products.

Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company.

Investing involves risk. Jason Parker is the president of Parker Financial LLC, an independent fee-based wealth management firm. Located at 9 2 3 0 Bayshore Drive Northwest Suite 2 0 1, Silverdale, Washington. For additional information, call 3 6 0 3 3 7 2 7 0 1 or visit us online@soundretirementplanning.com.